Generators pass on carbon costs

Australia’s highest-emitting power stations have been able to pass on the entire cost of the carbon tax in its first six months despite predictions the tax would hit their bottom line, research shows.

The research by energy analyst Bruce Mountain, based on energy spot prices in Victoria, predicts the state’s brown-coal power stations will make windfall profits of up to about $5.4 billion from government assistance in free permits and cash given to compensate for the effects of the new tax.

But with the Yallourn Power Station having been flooded due to heavy rain and the withdrawal of capacity by coal generators because of low demand during the same period, it may be too early to know whether power stations will continue to be able to pass on the entire carbon costs. Spot prices have already fallen in the past two months.

Modelling before the scheme’s introduction forecast that the generators would be able to pass on only about 80 per cent of the cost of the tax.

The study, commissioned by conservation group Environment Victoria, states that even if the amount of carbon passed on by power stations falls “significantly", they are still likely to improve their profits as a result of the compensation payments but the level of overcompensation would be reduced by lower carbon prices in the future.

“Professor
Ross Garnaut
[the federal government adviser on climate change] and others warned against compensation payments for generators, stating they were unnecessary," Mr Mountain said. “The level of pass-through that has been observed so far has been unexpectedly high, and seems to vindicate their concerns."

Federal Climate Change Minister
Greg Combet
said the study was “ideological". “As further clean energy investments are made, driven by both the carbon price and renewable energy target, the most emissions-intensive generators are expected to pass through even less of their liabilities," Mr Combet said.